For major defense and aerospace companies, the second quarter started off with turbulence thanks to sequestration. This week, though, strong earnings from the a pile of defense stocks illustrated that the Pentagon’s biggest contractors are managing to rise above the storm.
The top six U.S. defense contractors — Boeing (BA), United Technologies (UTX), Lockheed Martin (LMT), General Dynamics (GD), Northrop Grumman (NOC) and Raytheon (RTN) all significantly beat analysts’ earnings estimates for the quarter.
Wall Street can be forgiven for its low expectations, too. After all, deep defense cuts already have driven down revenue year-over-year for most companies in the sector and sequestration — the $85 billion in across-the-board federal spending cuts that kicked in on March 1 — was deemed certain to eat these contractors’ lunch.
The fact that their fortunes did not fall off a cliff is largely a testament to two tactics: aggressive cost-cutting and growth in business lines that aren’t solely dependent upon a Pentagon check.
Let’s break down the recent reports further.